A Law Firm at the Intersection of Business and Technology

Monthly Archives: June 2014

Over the weekend, a letter from Aereo founder and CEO Chet Kanojia appeared on the Aereo website and to any of Aereo’s 500,000 or so customers who logged into the Aereo ap. While ABC might have thought that it had cut off the hydra’s head after the Supreme Court ruled in its favor last week, Aereo is clearly still pursuing the case in the court of public opinion:

A little over three years ago, our team embarked on a journey to improve the consumer television experience, using technology to create a smart, cloud-based television antenna consumers could use to access live over the air broadcast television.

On Wednesday, June 25, the United States Supreme Court reversed a lower court decision in favor of Aereo, dealing a massive setback to consumers.

As a result of that decision, our case has been returned to the lower Court. We have decided to pause our operations temporarily as we consult with the court and map out our next steps.

The cornerstone of the Supreme Court 6-3 ruling was the holding, as reported by Scotusblog, that “Aereo publicly performs copyrighted works, in violation of the Copyright Act’s Transmit Clause, when it sells its subscribers a technologically complex service that allows them to watch television programs over the Internet at about the same time as the programs are broadcast over the air.”

If you know anything about the Copyright Act of 1976, you probably know that copyright owners are given a bundle of rights with respect to original works of authorship, among them the exclusive right to perform the copyrighted work publicly. At the heart of this case is whether Aereo, as it claimed, merely rented a small antenna and a digital DVR to each of its customers so that they could grab “free” TV signals off the air and watch them later, or whether Aereo was acting more like a cable company and actually retransmitting copyrighted broadcasts in violation of the Act.

The majority in the Supreme Court decided that it was the latter, relying on Congress’s express emendation of the Copyright Act in 1976 to encompass cable TV companies. The basis for their reasoning was the so-called “transmit” clause, which maintains that the exclusive right to “perform” a work covered by the Copyright Act includes the exclusive right to “transmit or otherwise communicate a performance . . . of the work . . . to the public, by means of any device or process, whether the members of the public capable of receiving the performance . . . receive it in the same place or in separate places and at the same time or at different times.”

Dissenting, Justice Scalia filed an opinion joined by Justices Thomas and Alito expressing the belief that Aereo does not “perform” because Aereo’s subscribers determine their own programming selections just as a copy shop serves consumers by providing machines capable of copying anything that the consumer brings in to copy, whether it is subject to copyright or not, and it would be wrong to blame the technology for the fact that it is capable of facilitating law-breaking uses (is anyone thinking of handguns here?).

Scalia goes on to criticize the Court’s holding as stitching together a few fragments of legislative history and lacking solid foundation:

“What we have before us must be considered a ‘loophole’ in the law. It is not the role of this Court to identify and plug loopholes. It is the role of good lawyers to identify and exploit them, and the role of Congress to eliminate them if it wishes. Congress can do that, I may add, in a much more targeted, better informed, and less disruptive fashion than the crude ‘looks-like-cable-TV’ solution the Court invents today.”

While the Supreme Court ruling may appear to have ended the two-year legal battle between ABC and the feisty tech start-up, Aereo, although it originally said that there was no “plan B,” now claims that while it may be down, it is not out. As Forbes contributor Mark Rogowsky notes, Aereo “didn’t have time to seek changes to federal law. Instead, it took the path of an Uber or AirBnB: operate in a legal grey area and hope the law moves with you or affirms your actions. Unlike those other companies, however, Aereo faced big national entities who could take the matter before the ultimate Court in the land.”

While Fox and the big broadcasters may be delighted with the ruling for the time being (Fox is currently suing Dish Network in a similar case involving its Dish Anywhere app, a case that is up before the Ninth Circuit Court of Appeals next month), the blogosphere is already alight with Aereo alternatives, and it may well be that, having plucked a single dandelion head, ABC’s efforts to put down one upstart in the popular rebellion against astronomical cable fees will merely spread the seeds of innovation beyond even the reach of the large cable monopolies’ power to control.

Since July, 2009, the federal minimum wage for “covered,” “non-exempt” workers has been $7.25 per hour. In addition, unless they are “exempt employees,” workers covered by the Act must receive overtime pay equal to at least time-and-a-half for hours worked in excess of 40 in a workweek. Kids younger than 14 can only usually be employed by their parents, as actors or performers, as casual babysitters, or delivering newspapers. Older kids have fewer restrictions, but are still usually restricted as to hours and prevented from working in certain hazardous occupations. Employers of non-exempt workers are generally required to keep accurate (though not particularly extensive) records containing identifying information about the employee and data about the hours worked and the wages earned.

Sound simple?

If only it were.

Let’s start with a short quiz.

How many employees does a company have to have before it is required to offer health care under the Affordable Care Act?

If you said 50, you would be correct, for the time being anyway.

How many employees do you have to have to be liable for Title VII discrimination based on race, color, religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information?

Are you up on your anti-discrimination law? If you said at least 15, you are probably right (though the Immigration Reform and Control Act of 1986 (IRCA) prohibits discrimination on the basis of national origin by smaller employers with 4 to 14 employees).

Ok, let’s get back to the FLSA.

How many employees do you have to have to be subject to the minimum wage and overtime, recordkeeping, and youth employment laws of the FLSA?

50? No.

15? No again.

Well, it’s a trick question, really. The answer is that it really doesn’t matter how many employees you have. All you have to be to be subject to the FLSA is to be engaged in a “covered enterprise.”

So, what’s a covered enterprise?

One that has at least 500,000k in annual revenue; OR one that runs a hospital, old-age home, home caring for the sick or mentally ill or a school; OR one that carries out the work of a public agency.

At this point you may be asking yourself why, under this definition of a covered enterprise, are minimum wage and the rest of the FLSA requirements are such a big deal?

Oh, yes… even if your business is not a “covered enterprise,” your employees will be likely still subject to the FLSA if they are (1) engaged in interstate commerce or in the production of goods for interstate commerce, or in any closely-related process or occupation directly essential to such production; (2) if they work in communications or transportation; regularly use the mails, telephones, or telegraph for interstate communication, or keep records of interstate transactions; handle, ship, or receive goods moving in interstate commerce; regularly cross State lines in the course of employment; or work for independent employers who contract to do clerical, custodial, maintenance, or other work for firms engaged in interstate commerce or in the production of goods for interstate commerce.

You may have heard that salaried employees are exempt from the FLSA, but just because an employee is paid a salary, this does not necessarily mean the employee is automatically exempt from the requirement to pay overtime, otherwise employers could simply pay all hourly employees an equivalent weekly salary and get around the law.

In fact, exemption from the wage and hour laws is only gained under one of these specific exemptions, each of which requires a salary of at least $455 per week :

Executive Exemption (requires that the employee be engaged primarily in managing the business or a business subdivision, directing at least two full-time employees and have authority to hire and fire or at least recommend hiring and firing).

Administrative Exemption (requires that the employee be engaged in the performance of office or nonmanual work directly related to the business and the performance of tasks that include discretion and independent judgment in matters of significance).

Professional Exemption (requires that the employee be required to use advanced knowledge,intellectual in character, requiring the consistent exercise of discretion and judgment–sometimes called the “learned professions” exemption).

Creative Professional Exemption (requires that the employee be engaged in work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor).

Computer Employee Exemption (requires that the employee be a computer systems analyst, computer programmer, software engineer or other similarly skilled worker making the equivalent of at least $27.63 an hour).

Outside Sales Exemption (requires that the employee engaged in sales away from the employer’s place of business).

Highly Compensated Employees. (requires that the employee performs at least one other duty of an exempt employee).

$5.15/hour. In fact, only Minnesota, Arkansas, Georgia and Wyoming have minimums below the federal level at the moment.

If the Federal minimum wage is $7.25/hour, does it really matter if Georgia’s minimum is $5.15/hour?

Generall, no. Federal law will trump state law in most if not all cases.

What about wait staff and bar tenders? Do they have to earn minimum wage? Are there any other exceptions?

The Georgia minimum wage for tipped employees is $2.13 per hour, the same as the federal minimum wage for tipped employees. The Georgia tipped wage applies to employees like waitresses, waiters, bartenders, valets, and other service employees who earn more than $30 in tips a month, BUT they must still earn at least minimum wage for the number of hours worked.

“Youth Minimum Wage Program” allows Kids under 20 to be paid a special minimum wage of $4.25 per hour for the first 90 days of employment with any employer. After the first 90 days have passed (or when the employee turns 20, whichever comes first) the employee must be given a raise to the full minimum wage.

There are certain exceptions for which employers have to obtain special certificates from the DOL (e.g., full time student program, student learner program, certain employees with disabilities).

Certain nonprofits apply for permission to hire at 85% of minimum wage.

There is also a range of special exceptions to minimum wage, overtime, and child labor laws that relate to specific jobs or professions, some of which are exempt from some parts of the law but not other parts, e.g., Airline employees (exempt from overtime requirements); Amusement/recreational employees in national parks/forests/Wildlife Refuge System (overtime); Babysitters on a casual basis (exempt from minimum wage and overtime requirements if employed on a casual basis); companions for the elderly; certain domestic employees who live-in; firefighters working in small (less than 5 firefighters) public fire departments; local delivery drivers and driver’s helpers; motion picture theater employees; newspaper delivery (minimum wage, overtime, and child labor laws); youth employed by their parents; and a range of others.

It is also important to note that minimum wage, overtime, and child labor laws apply equally to documented and undocumented workers alike. Not only this, but the FLSA has specific record keeping requirements that are often violated by businesses who fail to keep proper records regarding undocumented workers, subjecting the business to greater penalties for violation when they are caught.

Penalties under the FLSA may include payment of all back wages or unpaid overtime, plus an equal amount as liquidated damages, plus, frequently, attorneys’ fees and court costs. If the secretary of labor brings suit,willful violators can be assessed a fine of up to $10,000 plus imprisonment. Additionally, employers who violate child labor provisions can be fined $11,000 per employee, increased to $50,000 per employee for death or serious injury, and doubled when violations are willful or repeated. Moreover, not only the company itself, but owners, officers, even supervisors can be held personally responsible.

The bottom line is that the FLSA applies to almost everyone, its complexity means that it is frequently misunderstood, and, unlike most federal laws governing employment relationships, it applies to both large and small businesses.

If you are in any doubt as to whether or not you, as an employer, are in compliance with the FLSA (which, it has to be said, involves far more than this brief summary could possibly suggest), speak to an employment lawyer at Briskin, Cross & Sanford, LLC.

You are sitting poolside, enjoying a bottle of Minute Maid’s “Pomegranate Blueberry Flavored Blend of 5 Juices” when you happen to look at the ingredients.

It slowly dawns on you the the self-described “Pomegranate Blueberry Flavored Blend of 5 Juices” only in fact contains about 0.3% pomegranate juice and 0.2% blueberry juice.

You are outraged!

How can Minute Maid and its owner, Coca-Cola, get away with such misleading labels?

The good news is that they no longer can, thanks to POM Wonderful, LLC and a unanimous U.S. Supreme Court.

It begins (as it always does) with a lawsuit. POM Wonderful sued Coca-Cola, alleging that Coke’s label for its “Pomegranate Blueberry” juice deceives buyers into believing that the juice primarily contains both pomegranate and blueberry, thus violating Section 43(a) of the Lanham Act (which addresses situations where one company’s false advertising is causing harm to another competing business).

Coke’s response to the lawsuit was simple: its “Pomegranate Blueberry Flavored Blend of 5 Juices” label complied with the Food, Drug and Cosmetic Act (the “FDCA”) regulations, which trump the Lanham Act. Thus, Coke argued, if its label complies with the FDCA, it cannot be liable under the Lanham Act.

In a rare, and, dare we say, juicyunanimous decision, the U.S. Supreme Court sided with POM Wonderful (interestingly, it has been reported that Justice Kennedy stated during oral arguments that he was also misled by Minute Maid’s “Pomegranate Blueberry” label).

Now, a company harmed by a competitor’s false or misleading marketing of a food or beverage product can file a lawsuit under the Lanham Act, even if the marketing labels are regulated by the Food and Drug Administration and comply with the Food, Drug and Cosmetic Act.

The U.S. Supreme Court’s recent decision will have companies in the food and beverage industry scrambling to review, and possibly revise, their labels and marketing materials. Of course, this decision has farther reaching implications than just for Minute Maid and its competitors since the Supreme Court’s decision could conceivably apply to other businesses regulated by federal laws… like alcoholic beverages, transportation, even pharmaceuticals.

If you are concerned that your product label does not properly describe your product, or perhaps a competitor’s label falsely describes your competitor’s product and puts you and other honest businesses at a disadvantage, consult a trademark attorney at Briskin Cross and Sanford… before, not after, someone squeezes your juciebox for you.

After conducting this initial inquiry to determine whether or not a seller’s offering qualifies as a business opportunity, the seller can then determine what is required, both federally and in each state the Biz Op is sold. Of course if a seller is not marketing a Biz Op, there are no special business opportunity requirements with which it must comply (keep in mind, however, that even if a seller is not selling a “business opportunity,” it must still comply with other state and federal laws concerning fraud and unfair or deceptive business practices or the sale of securities) .

If a seller is in fact marketing a Biz Op, it must comply with the following regulations.

Federal law requires the business opportunity seller to provide prospective purchasers with a one page form disclosure document disclosing the seller’s name, address, and phone number; whether the seller had been the subject of a civil or criminal action; whether the seller offers a cancellation or refund policy; whether the seller makes any earnings claims (earnings claims can be express {“you’ll make a million dollars”} or implied {purchasers of this business opportunity drive Ferraris]); and the name and phone number of ten (10) other purchasers closest in distance to the prospective purchaser. If the seller has litigation history or makes earning claims it will have to attach these to the disclosure documents as additional pages.

All things considered, this disclosure document is much simpler and more streamlined than it once was. Prior to March 2012, the business opportunity rules were contained along with the franchise rules under one code section, 16 CFR § 436. This rule required extensive disclosures, as is still the case with regard to franchises. The Federal Trade Commission (“FTC”), which promulgates business opportunity and franchise regulations, ultimately determined that while franchises involved complex contractual licensing relationships and substantial investment costs, business opportunities often involved simple contracts and significantly lower investments. As such, the extensive disclosure requirements of the franchise rule imposed unnecessary compliance costs on both business opportunity sellers and buyers.

Therefore, the FTC decided to split the franchise rule into two separate code sections, one governing franchises and the other governing Biz Ops. The first business opportunity rule was set out in new code section 16 CFR § 437 as an “interim rule.” The interim rule was identical to the previous franchise rule, requiring the same detailed disclosures. Finally, however, in March 2012, the new and much-simplified business opportunity rule went into effect. As stated, the new rule requires the seller to disclose a one-page form disclosure document to prospective purchasers. This disclosure must be given to each prospective purchaser 7 days before the purchaser gives the seller any consideration or enters into a contract.This must be given to every prospective purchaser in every state, whether or not the state has its own law on point, and cannot be combined with other information that may confuse or obscure the disclosures required by federal law.

In addition to the federal disclosure requirement, many state laws not only require disclosure to the prospective purchaser, but also require registration with the state. Typically this means that the seller sends a copy of the state-specific disclosure and any required attachments (typically a copy of the contract the seller uses with purchasers; financial statements of the seller) along with a required payment (typically a couple hundred dollars) to the state’s regulating department (often the secretary of state, the attorney general, or the securities commission). If a state requires the seller to register the disclosure document with the state, it is critical the seller does so before soliciting sales in that state.

Each year the seller is required to file a renewal and pay the renewal fee. Throughout the course of a year, a seller is required to file an amendment if any material changes in the required information occur.

A number of state laws, however, were created to mirror the former federal business opportunity law, which required much more extensive disclosures. Despite the fact that the federal rule has since changed and become more simplistic, many such states have retained the more extensive disclosure requirements and have not amended their disclosure requirements. As such, these state disclosures may require the seller to disclose additional information such as the name and address of each of the seller’s salespersons, the business and education background of the seller’s principals and officers, as well as their personal litigation and bankruptcy histories; the terms and conditions of the offer and any training provided; statistical figures regarding the amount of business opportunities sold, failed, terminated, refunded, and still operating; audited financial statements; proof that the seller has obtained a bond; certain disclaimers or mandatory refund periods required by state law, or even copies of advertisements used by the seller. The disclosure document often also requires the seller to attach a copy of the proposed contract, which also must include certain content required by state law.

States have varying requirements for the timing of disclosure documents to prospective purchasers. A number of states require that the seller give disclosure documents to prospective purchasers no less than 48 hours prior to the time the purchaser signs a contract or gives any consideration (typically, the whole or a part of the purchase price). Some states, however, require disclosures be made 10 business days prior. It is critical that the seller have a clear guide to follow when marketing to prospective purchasers to ensure it does not run afoul of state-specific disclosure requirements.

Some states also require the seller to secure a bond, against which aggrieved purchasers can recover. Not all sellers must secure a bond, but only those that make certain representations, such as a guaranty that the purchaser will derive income from the business opportunity that exceeds the price paid, or a representation by the seller that it buy back from purchaser any unsold products.

Based on the foregoing it is not difficult to see why a Biz Op seller may seek to negotiate a balance between the representations it makes in courting prospective purchasers and the corresponding compliance required under state law. This nuanced dance is explored in greater detail in Part III of this blog series, which explores business opportunities as a growth strategy.

Pay attention, Georgia employers. In an unexpected turn of events, the Georgia Court of Appeals in Scott vs. Butler, et. al. (June 4, 2014) recently decided that Georgia employees who are also domestic violence victims may receive unemployment benefits if the employee quits because the attacker contacts or seeks the employee at work.

This is true even if the employer did not create or contribute to the dangers affecting the employee.

Employees in Georgia are generally denied unemployment compensation if the employee, without good cause, voluntarily quits or leaves employment. Georgia law does allow unemployment benefits when the former employee becomes unemployed through no fault of their own.

This new basis for unemployment benefits started with a claim filed by Latresha Scott against Variety Stores, Inc. Ms. Scott had a violent history with her ex-boyfriend, who had been arrested on multiple occasions for physically attacking Ms. Scott (including kicking her in the stomach during her pregnancy) and even attempting to strangle Ms. Scott with a belt shortly after she delivered their younger child.

Despite myriad restraining orders, the ex-boyfriend found Ms. Scott’s place of employment with Variety Stores, Inc. and began contacting her there. Ms. Scott ultimately resigned from Variety Stores, Inc. because she did not feel safe coming to work, and filed for unemployment compensation.

Scott’s employer opposed the claim, citing the fact that Scott had resigned voluntarily from her position at no fault of the employer. A hearing officer found in favor of the employer and denied Scott’s application, ruling that, while Scott “may have considered the work environment to have been difficult,” she had “the burden to do whatever a reasonable person would do to retain her employment.” Hence, since her resignation was based upon “personal reasons” and not a good, work-connected cause, she was not entitled to unemployment compensation. The Board affirmed the ruling, and the Superior Court of Fulton County subsequently affirmed the Board’s decision.

The Georgia Court of Appeals, however, reversed the Board’s finding on the basis that, even though the employer did not create or contribute to the dangers Scott faced, to deny someone benefits in such circumstances as Scott’s would effectively be to force her to work in a dangerous environment and would place her and others at risk of violence due to circumstances that beyond their control.

The bottom line for employers is this: if a domestic violence victim quits because her or his attacker seeks out the victim at work, the employer will most likely be on the hook for unemployment benefits.

If you are ever in doubt as to whether or not you are liable for unemployment benefits when one of your employees leaves, take the time to speak with an employment lawyer at Briskin, Cross & Sanford to see what both your rights and your obligations may be under this ever changing area of law.

Your franchise is up and running and generating a buzz. You are getting inquiries from across the US, some of which are clearly qualified buyers itching to get into this new franchise opportunity.

It’s difficult to turn away a prospective buyer, but sometimes that’s exactly what you need to do, at least temporarily.

Say, you get an inquiry from a prospective franchisee in New York. You are aware that New York is one of the states that requires franchise registration–in fact, you have already begun the process of registration with the state. Is now a good time to enter preliminary conversations with the prospective buyer? What if you fully disclose to the buyer the fact that you are still waiting on approval from the State of New York and cannot consummate any deal until such time as you are approved, are you in the clear now?

The answer, as you may have suspected, is no.

The previous summary is based on Reed v. Oakley, 661 N.Y.S. 2d 757 (1996). In Reed, a franchisor began negotiating with a prospective buyer after the franchisor had registered with the state of New York, but before receiving approval. The franchisor informed the buyer it was not able to close the deal until it was approved by New York, and the initial agreement of the parties even specified that the buyer was to receive disclosure documents and have the required time to review them before any deal would close.

When the relationship between buyer and franchisor later soured, the buyer cried foul, claiming that the franchisor violated New York’s Franchise Sales Act by soliciting and negotiating the sale of a franchise prior to receiving approval to sell franchises in the state of New York. The court agreed with the buyer, finding that New York’s Franchise Sales clearly prohibits solicitation or negotiation of a franchise sale prior to registration approval. The fact that franchisor appears to have acted in good faith and did in fact give the buyer all the relevant disclosures plus time to review them prior to closing the deal appeared to have no influence on the court’s decision.

The real rub in this case for the franchisor is the loss it sustained. Typically, the remedy for violation of the New York Franchise Sales Act is the amount of damages the buyer can prove were sustained by the franchisor’s violation of the law. If, however, the franchisor has “willfully” violated New York’s Franchise Sales Act, then the franchisee may rescind the contract, get all his money back, plus 6% interest, plus attorneys fees, and court costs.

Ouch!

Sometimes the word “willfull” is associated with conduct you would think of as knowingly wrong, but in Reed v. Oakley, the court determined that the word “willful” means simply “voluntary and intentional, as opposed to inadvertent.” The franchisor had, in fact, voluntarily and intentionally negotiated with Reed, and in so doing it “willfully” violated New York law, subjecting it to all of the penalties.

In the world of franchise and business opportunity sales, it is almost unavoidable that a few buyers will feel that the business they have bought does not quite meet their expectations. If this happens to you, you want to be sure that you have fully complied with all state disclosure laws.

Compliance can be challenging, given the fact that there are both federal and state requirements, state franchise laws vary from state to state, and franchise requirements can be rather complex. Sometimes franchisors are tempted to do it all themselves, but like an attempted home haircut that winds up back in the barber’s chair, a do-it-yourself approach all too often results in franchisee complaints, state action, wasted money, and worst of all, wasted time. A franchise attorney can help you avoid the disclosure pitfalls, protect your intellectual property, and bolster your contracts and agreements, freeing you up to focus on the job you should be doing, growing your business.

Before you begin soliciting franchisees or advertising in a state, make sure you are informed of the law. Develop a registration roll-out game plan, follow it, and avoid the pitfalls. A franchise attorney at Briskin, Cross and Sanford can help you do this.

Contact us:

Because we are lawyers…

This blog is for informational and educational purposes only. No duties are assumed, intended, or created by this blog. If you have not executed a fee contract or an engagement letter, this firm does not represent you as your attorney. You are encouraged to retain counsel of your choice if you desire to do so.